Global Economics Pre-1914 and Beyond

Global Political Economy

• Subject matter is global political economy, presented by M.Teresa Aceytuno at the University of Huelva.

Summary of Topics

• World Economy Pre-1914
• World Economy in the Inter-War Period
• World Economy Post-1945
• World Economy: Globalization
• The Breakdown: Global Financial Crisis
• World Economy Between Great Recession and Great Lockdown
• The Great Lockdown

World Economy Pre-1914

• Modern world economy emerged in 15th and 16th centuries.
• Mercantilism: Wealth equated with power.
• Limited overall global wealth increase.
• Industrialized countries (e.g., Western Europe, USA, Japan) contrasted with rest of the world.
• Trade with colonies prioritized over trade between industrialized nations.
• Tariffs acted as barriers to international trade.
• No significant intergovernmental cooperation; bilateral agreements predominated.
• Gold standard provided certainty for international transactions.
• Internal deflation served as an adjustment mechanism.

World Economy in the Inter-War Period

• World War I (WWI) caused devastation in European economies.
• WWI led to political instability due to reparations and wartime borrowing (e.g., France, UK).
• Post-war governments struggled to create viable international financial systems.
• Restoration of gold standard in 1925 caused misalignment of exchange rates.
• Domestic economies became subordinate to global markets, and this unworkable system was abandoned in 1931.
• Tariffs increased significantly from 1930 onwards.
• World trade declined, with trade concentrated within closed imperial blocks.
• The League of Nations proved ineffective.

World Economy Post-1945

• Marked by unprecedented economic growth rates.
• GDP increased faster than pre-1945 levels.
• Global trade expanded more rapidly than world production.
• Imports and exports gained importance in most economies, driving support for liberalization.
• Characterized by embedded liberalism and multilateralism.

World Economy: Post-1945 (2)

• Embedded liberalism (Ruggie, 1992): compromise between domestic economic objectives and openness to trade and investment.
• International commitments in trade and finance (e.g., IMF, GATT) allowed for opting out.

World Economy: Post-1945 (3)

• Multilateralism: institutionalization of international economic cooperation (e.g., Bretton Woods institutions – IMF, World Bank).
• Generalized principles of conduct (e.g., most-favored-nation principle).

World Economy: Globalization

• Key features:
  • Growing interdependence among countries.
  • Global trade crucial for economic growth.
  • Globalized production networks.
  • Globalized finance and complex financial instruments.
  • Global financial systems vulnerable to periodic crises.
  • Growing significance of private actors.

World Economy: Globalization (2)

• Growing influence of transnational corporations (TNCs).
• TNCs own assets and manage operations in multiple countries.
• TNC subsidiaries accounted for 10% of global GDP in 2009.
• TNC sales exceed world trade value.
• Integration of developing countries into globalized networks.

The Breakdown: Global Financial Crisis

• Lehman Brothers' bankruptcy (September 2008) triggered massive sell-offs in Wall Street.
• Dow Jones fell significantly.
• Global financial crisis (or Great Recession): global economic downturn.
• World output's decline (-0.8% in 2009).
• FDI fell by 40% in 2009.
• Significant differences in economic impact across countries/regions. (e.g., EU, China, India)
• Subprime mortgage market involvement was a key origin of problems.
• Rapid transmission to financial institutions and the real economy: lending cuts, bank bailouts, slowed production, raw materials price fall.
• Increased poverty 65 million in 2008 (World Bank estimates).

Global Financial Crisis (2)

• Sovereign debt crisis:
  • Bail-outs, transferring risk from private to public sectors.
  • Cost of stimulus packages.
  • Budget deficits increased (e.g., 10% in 2009).
  • High public debt levels (over 100% of GDP).
  • Problems for Southern and Eastern Europe.
• Policy responses included the G20's emergence, IMF revitalization, and avoidance of protectionist policies.

The Global Financial Crisis (3)

• Lessons learned from crisis:
  • Growing interdependence among countries.
  • Vulnerability of contemporary financial systems.
  • Speed of problem transmission.
  • Necessity of international cooperation.
  • Significant and evolving role of international institutions.
  • Impact on poverty and inequality.

The World Economy Between the Great Recession and the Great Lockdown

• Slow recovery of global output.
• Problems arising in global trade due to protectionism.
• Trade disputes (e.g. the US-China trade conflict).
• Other factors: government shutdowns, Brexit, monetary policy changes (e.g., tariffs raised)

The Great Lockdown

• Coronavirus pandemic beginning in 2020 triggered global quarantines and social distancing to contain spread.
• This was a multi-faceted crisis: health crisis, financial crisis, and commodity price collapse.
• Unprecedented support for households, firms, and financial markets.
• About 6-7% GDP loss predicted.
• Complex interactions between the various factors led to the crisis.

War in Ukraine and Current Trends

• Russia's invasion of Ukraine (2022).
• Followed by a slowdown in global economic growth.
• Global output contracted (downturns in China and Russia).
• Unexpected inflation in many countries
• COVID-19 outbreaks and lockdowns in China.
• Economic repercussions from the war in Ukraine.
• Growth projections for 2022-2024 (differing projections for global, advanced, and emerging/developing economies).

References

• J. Ravenhill (2014): Global Political Economy, Oxford University Press (Chapter 1)
• R. Gilpin (2001): Global Political Economy, Princeton University Press (Chapter 4)
• WTO website: https://www.wto.org/
• IMF website: https://www.imf.org/

Test your knowledge on the significant impacts of industrialized countries on global economies before 1914 and the subsequent economic events leading to 2022. This quiz covers various themes such as the Gold Standard, tariffs, and recovery patterns in consumer spending. Dive into historical and contemporary economic trends!